Proposed changes announced in 2018 to Principle Private Residence & Letting Relief

These changes to capital gains tax (CGT) are due to come into effect from 6 April 2020, but there will be a consultation on the details first.

From April 2020:

* Lettings relief will only be available to those who are in shared occupancy with a tenant.

* The final period exemption allowing Principle Private Residency exemption for the last 18 months of ownership as long as the property qualified for PRR at some point, will be reduced to 9 months.

* The final period exemption will remain 36 months for those who move into care and for disabled persons.

https://www.gov.uk/government/publications/private-residence-relief-budget-2018-brief

Changes with regard to rollover and accessing benefits from a QROPS

Following the transfer of UK sourced pension money to an Australian QROPS, it is then within the Australian superannuation system and will be covered by the Australian rules. However, upon withdrawal or rollover to another superannuation fund, UK tax charges may still apply to the money.

There are two different tests for this. Which one should be used depends on when the transfer of the UK pension money to the QROPS took place.

If it was before 6 April 2017 then UK tax rules will still apply if the member:-

Ø at the time of the rollover or withdrawal is tax resident in the UK or had been earlier in that UK tax year or in any of the 5 preceding UK tax years

If it was on or after 6 April 2017 then UK tax rules will still apply if the member:-

a. at the time of the rollover or withdrawal is tax resident in the UK or had been earlier in that UK tax year or in any of the 10 preceding UK tax years, or

b. a period of 5 years has not passed since the transfer of UK pension money to the QROPS took place.

If UK tax rules do not apply under the above tests, then a rollover of UK sourced pension money to a non-QROPS or a withdrawal by the member can be done without incurring UK tax.

Are you considering accessing your UK Pension Benefits?

With the introduction of Flexi Access you have the flexibility to access your benefits up to 100% of the value of your funds, I would suggest you discuss this in further detail with a suitable qualified professional on your ability to access your pension benefits when considering your options.

You need to be aware of changes that were introduced in April 2017 I f you are considering withdrawing 100% of your UK Pension Benefits as a lump sum payment (should your UK Pension Provider allow this option) as any lump sum paid in excess of the 25% tax free amount will be taxed in the UK by your pension provider.

You may be eligible to claim a part refund of the tax due to your entitlement to UK Personal Allowances from HMRC. Any tax paid on amounts over and above the personal allowance will be available to claim a foreign tax offset in Australia.

However, if you have other UK sourced income in the year of withdrawal that will utilise your personal allowances, they will not be available to reduce the UK tax due in relation to the lump sum payment. Should any of the lump sum payments fall into a higher rate tax band, due to the basic rate band being utilised by other income, additional tax may be payable to HMRC.

Taxation of a UK Lump Sum Payment

You would need to report on your Australian tax return the amount of the lump sum that relates to your applicable fund earnings. In general terms, the applicable fund earnings are the earnings on your foreign super interest which have accrued while an Australian tax resident.

You are only assessed on the income that you have earned on your benefits in the UK Pension Scheme during your Australian residency period. Earnings made during periods of non-residency, and contributions and transfers into the UK Pension Scheme, do not form part of the taxable amount when the lump sum benefit is paid.

Therefore, the ‘applicable fund earnings’ amount in respect of the lump sum received from each of the UK Pension Scheme would be calculated by deducting the Australian dollar equivalent of the amount just before the residency date from the amount on the day of receipt. Both amounts should be translated using the exchange rate applicable on the day of receipt.

We at GM Tax can provide you with a comprehensive guide to your UK & Australian tax position when considering accessing your UK pension benefits, please call one of our offices or sent an online enquiry via our website.

Retired In Australia and receiving a UK pension?

Retired In Australia and receiving a UK pension?

Learn more as to how MoneyCorp can help you make the most of your pension benefits in Australia.

As many retirees living overseas we know that the fixed income of a pension can sometimes mean that budgets are tight and you are often caught by FOREX fluctuations – but if you’re receiving a pension from the UK, there are ways that you can make the most of your hard-earned money. Using a foreign exchange specialist rather than your high street bank to convert your pounds into dollars could make a significant difference to the amount of dollars that arrive in your account.

Please refer to the attachment/link below to see how MoneyCorp can assist you.

Download

Save time and automate your regular international payments

There are many reasons why ex-pats need to send money abroad on a regular basis, from property maintenance or child support, to less frequent costs like tuition fees. Automatic payments via a Regular Payment Plan mean that all your bills get paid on time, and you can save yourself the time it takes to organise them each month.

Most of us are used to automatic payments – from electricity and phone bills to subscription and membership services – very few people sit down to settle their bills on a monthly basis. Many people are not aware that you can use the same facility for international payments, and this can be a convenient alternative to checking rates and transferring money each time a payment is due. While this can all be done online relatively quickly, you still need to remember to make the payments and ensure that any currency you convert covers the required costs.

If you opt for a Regular Payment Plan (RPP), you can fix the amount of currency received or debited, or both if youchoose to lock-in the exchange rate. You can fix these payments for up to two years. This means that you can becertain that any required payments will be covered, and if you are receiving a pension payment from the UK you can budget ahead with confidence whatever happens to the exchange rate.

You can set these payments up over the phone or organise them wherever you are by accessing your account online and via the moneycorp app. The Regular Payment Plan offers convenience and great value, and provides an easy way to manage your funds across borders with a full clear statement as a record of all your payments.

Article courtesy of Moneycorp.

Moneycorp is a reference to TTT Moneycorp Pty Limited which is registered in Australia (business number 116612858). Its principal place of business is Level 15
Exchange Tower, 2 The Esplanade, Perth WA 6000, Australia. TTT Moneycorp Pty Limited is authorised to deal in foreign exchange contracts and buy/sell quotes
to retail and wholesale clients as an Authorised Representative (reference number 445555) of Rochford Capital Pty Limited (AFSL License No. 361276).

Landlord tax: an overview of the changes to buy-to-let tax relief

From 6 April 2017, the government made changes to the way landlords are taxed in the UK. These landlord tax changes will be phased in over the next four years and will not be applied at the full rate straight away – allowing landlords to take necessary action over time.

Who will the changes affect?

These changes will only affect landlords in the list below who have a mortgage for their rental property.

* Any UK resident individual who lets a residential property in the UK or overseas

* Any non-UK resident individual that lets a residential property in the UK

* An individual who lets residential property in partnership with others

* Trustees of a trust directly holding UK residential property

NOTE: These tax changes will not apply to landlords of furnished holiday lets and commercial properties.

What do the landlord tax changes mean for me?

Restricted tax relief on mortgage interest payments

The main change being made under the new tax rules, is that landlords will no longer be able to fully claim tax relief on their mortgage interest payments – so this change will only affect landlords who have a mortgage and not those who own their property outright.

However, the majority of buy-to-let landlords have an interest-only mortgage.

Currently, landlords can deduct allowable expenses and mortgage interest payments from their rental income and pay tax on the difference.

But from April 2017, landlords will only be able to claim tax relief at the basic rate of 20% on whichever figure is lower:

* Finance costs – including mortgage interest payments, loan repayments, overdrafts

* Profit from your rental income – calculated as rental income less allowable expenses

* Total income – calculated as anything other than savings and dividend income above the personal allowance after deducting losses and tax relief

NOTE: In most circumstances, the finance costs will be the lowest figure. But it’s important to highlight that it’s not just mortgage interest payments that will be used to calculate tax relief, but the lesser of the three figures above.

See below as to how the landlord tax changes:

The tax relief that landlords of residential properties get for finance costs is being restricted to the basic rate of Income Tax. This is being phased in from 6 April 2017 and will be fully in place from 6 April 2020.

How the tax reduction is worked out;

The reduction is the basic rate value (currently 20%) of the lower of:

* finance costs – costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward

* property business profits – the profits of the property business in the tax year (after using any brought forward losses)

* adjusted total income – the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance

The tax reduction is not able to be used to create a tax refund.

If the basic rate tax reduction is calculated using the ‘property business profits’ or ‘adjusted total income’ then the difference between that figure and ‘finance costs’ is carried forward to calculate the basic rate tax reduction in the following years.

You are still able to deduct some of your finance costs when you work out your taxable property profits during the transitional period. These deductions will be gradually withdrawn and replaced with a basic rate relief tax reduction:

Tax Year Percentage of finance costs deductible from rental income Percentage of basic tax rate reduction
2017/2018 75% 25%

2018/2019

50%

50%

2019/2020

25%

75%

2020/2021

0%

100%

Restricting Finance Cost for Individuals

The changes will restrict relief for finance costs on residential properties to the basic rate of Income Tax. These changes will be introduced gradually from 6 April 2017.

Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Individuals will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Individuals will be able to obtain relief as follows:

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

Please contact us at GM Tax should you wish to discuss how this changes may impact on you.

Capital gains tax changes for foreign residents

21 July 2017 | Exposure Draft

As part of the 2017-18 Budget, the Government announced that it would be making capital gains tax (CGT) changes for foreign residents.

Main residence exemption

From 9 May 2017 the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Principal asset test

From 9 May 2017 the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

We urge you to seek professional advice when deciding to sell your property as a non resident.

Witholding tax on disposals made by non residents

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017.   The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%) unless a clearance certificate is obtained from the ATO.  The existing threshold and rate will apply for any contracts that are entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017.
Where a withholding obligation exists, the purchaser must withhold the relevant amount at settlement and pay it to the ATO without delay as a general interest charge may apply to late payments.   The purchaser is required to complete an online Purchaser Payment Notification form at which time the purchaser will receive a payment reference number, and a payment slip allowing payment to be made. 
The penalty for failing to withhold is equal to the amount that was required to be withheld. An administrative penalty may also be imposed.

Leaving Australia to work overseas – Watch your tax residency

An increasing number of Australians are deciding to become an expat, spending time living and working overseas – often in a low tax or no tax location.

However, if you don’t cease to be a tax resident of Australia you are likely to find yourself with an unwanted and avoidable tax bill.

Here’s why.

  • Individuals who are tax residents of Australia are usually taxable in Australia on their worldwide income – whether or not they bring the income back to Australia.
  • By contrast, a person who is not tax resident in Australia is only subject to Australian income tax on income that has an Australian source – usually only rental income from property located in Australia. Note: Bank interest, dividend income, and royalty income is usually not subject to additional tax when received by non-Australian residents, so long as the correct amount of withholding tax has been applied.

This means that if you remain a tax resident of Australia and receive income from an employment in a no tax/low tax jurisdiction you can expect to receive an unwelcome – and possibly avoidable – tax bill from the Australian Taxation Office.

A full understanding of what you need to do to become non resident for Australian tax purposes is therefore key to ensuring you keep as much of your expat salary as possible.

Issues to be considered here are your domicile status for tax purposes, whether you have established a “permanent place of abode” outside Australia, and provisions of any applicable Tax Treaty between Australia and the country in which you will be living and working.

GM Expat Tax advises many individuals who are departing Australia to live and work overseas, with particular reference to their residency status.

Taking such advice at an early stage is good planning – you can’t plan after the event!

Complete the enquiry form on this page if you are an Australian who is planning to spend a period of time living and working overseas, or if you are already working outside Australia as an expat.

We’ll be pleased to have an initial discussion with you about your situation, and how we might help.